TRADE
POLICY REVIEWS: FIRST PRESS RELEASE, SECRETARIAT
AND GOVERNMENT SUMMARIES

PRESS
RELEASE
PRESS/TPRB/140
1 November 2000

Brazil:
November 2000

Brazil's
economic reform, which was initiated over a decade ago
has led to a more open trade and investment regimes and,
during the last four years, has produced a more
market-driven, decentralized environment through the
deregulation of state monopolies and prices, investment
liberalization and privatization, says a new WTO report
on the trade policies of Brazil. The report adds that the
resulting improved resource allocation and greater
flexibility have helped the economy to deal successfully
with external and other shocks, facilitating in
particular a rapid recovery from the financial crisis
that lead to the floating of the real in 1999.

Brazil economic reform has led to a more market-driven, decentralized and flexible economic environment

The
report notes that a market-set exchange rate would now
seem to provide the opportunity for Brazil to reduce, and
perhaps remove, some measures taken to restrict imports
or support exports, and to make a definitive break from
traces of past inward-looking policies. These and other
reforms aimed at fostering an undistorted balance between
exports and Brazil's large domestic market offer a
positive strategy to achieve and sustain higher economic
growth.

The
WTO report, along with a policy statement by the
Government of Brazil, will serve as the basis for the
trade policy review of Brazil which will take place on 30
October and 1st of November in the Trade Policy Review
Body of the WTO.

Developments
in economic activity were better than expected after the
financial crisis of late 1998 and the prospects are for
real growth of 4% in 2000, says the report. Inflation has
been kept in line with the Government's target of 8%.
Foreign direct investment (FDI) has increased
substantially since 1996, exceeding US$30 billion in
1999. Although FDI has been stimulated by privatization,
an important share has been autonomous reflecting the
attractiveness of a large internal market, better access
to other MERCOSUR markets, and the improved
market-orientation of the policy environment. Brazil's
trade as a percentage of GDP remained stable at some 20%
during the period under review. Brazil remains the
world's largest exporter of several agricultural products
including coffee, orange juice and sugar. The United
States and MERCOSUR, especially Argentina, are Brazil's
most important markets, followed by the European Union
(EU). The main suppliers to Brazil are, in decreasing
importance, the EU, the United States, and Argentina.

The
report states that foreign trade in Brazil is governed by
a large number of laws, provisional measures (MPs),
decrees, and resolutions, which have created an intricate
web of statutes; its simplification, for example through
the single trade law mentioned during Brazil's previous
Review, could enhance transparency. Trade-related laws
are amended frequently, including through the use of MPs
issued autonomously by the President. Some amendments
have helped speed up certain reforms but they may also
have lessened the predictability of the regulatory
structure for traders.

Brazil's
main trade instrument is the tariff, whose structure and
level are largely determined by a programme of
convergence towards MERCOSUR's Common External Tariff
(CET). In 1997, Brazil temporarily raised the tariff by
three percentage points. In addition, tariffs for capital
goods not produced domestically were increased from zero
to 5%. As a result, since 1996 the average MFN tariff has
increased to 13.7% (from 12.5%); the temporary three
percentage points increase is due to be removed by end
2000. Although dispersion has fallen, escalation is still
present. Brazil has bound its tariff but mostly at rates
higher than applied rates; closing this gap would further
improve predictability. A number of rates in the tariff
schedule exceed bound levels, but Brazilian legislation
requires abidance by bindings in such cases.

Automatic
import licences are in place for statistical purposes and
to monitor trade flow, the report says. Brazil's import
licensing regime has been the subject of consultations
between Brazil and some WTO Members, and is currently
under review. The country is an active user of
contingency measures, mainly anti-dumping.

Since
1996, protection of intellectual property rights has been
enhanced through the passage of new legislation and
greater enforcement efforts.

The
report also notes that State involvement in production
activities in Brazil has diminished substantially and
distortions to inter-sectoral incentives have been
reduced through the progressive adoption of more neutral
sectoral policies. However, some current policies echo
earlier import substitution strategies, with incentives
favoring some activities while implicitly taxing others.
Brazil is one of the world's major producers and
exporters of agricultural products. Government
intervention in the sector has decreased; support
programmes, mostly minimum-price supports and rural
credit at preferential rates, are targeted at assisting
low-income farmers in disadvantaged areas. Assistance to
agriculture appears modest, especially in the context of
market distortions introduced by the support provided to
agriculture in other countries, a problem that remains of
major concern to the Brazilian authorities.

Since
1996, there has been significant liberalization in the
services sector, mainly in telecommunications and
financial services. The entry of foreign banks since 1996
has led to increased competition and efficiency in the
banking system but persistent relatively large interest
rate spreads suggest the possibility for further
efficiency gains. Reforms have yet to produce the
required improvements in activities such as
transportation. Brazil took an active role in the
multilateral Negotiations on Financial Services and in
the Negotiations on Basic Telecommunications, making
offers representing improvements on its Uruguay Round
commitments in both sectors, according to the report.

As
a developing country, Brazil benefited from a transition
period to implement a number of commitments under various
WTO Agreements. Since 1996, Brazil has been involved in
16 cases under the WTO dispute settlement mechanism,
seven as a complainant and nine as a defendant; it has
participated as a third party in four disputes. Brazil
grants at least MFN treatment to all its trading
partners. Brazil's main trade policy objective has been
the implementation of the trade agreements negotiated at
the beginning of the 1990s, namely the Uruguay Round and
MERCOSUR. Better market access conditions for Brazilian
products are also a key item on its trade agenda.

The
report says that Brazil gives great importance to
deepening integration in South America; it is the
region's largest economy and trader, and is playing a key
role in that process. Accordingly, one of Brazil's major
trade objectives is the completion of MERCOSUR, by
including the sectors currently excluded from free trade
(i.e. automobiles and sugar), the progressive elimination
of the exceptions to the CET, the coordination of
economic policies, and the deepening of integration in
new areas. Another key element of Brazil's agenda is the
pursuit of negotiations with the European Union; efforts
involving the United States, Brazil's main single trading
partner, take place mostly through the Free Trade Area of
the Americas initiative.

Notes
to Editors

Trade
Policy Reviews are an exercise, mandated in the WTO
agreements, in which member countries trade and
related policies are examined and evaluated at regular
intervals. Significant developments which may have an
impact on the global trading system are also monitored.
For each review, two documents are prepared: a policy
statement by the government of the member under review,
and a detailed report written independently by the WTO
Secretariat. These two documents are then discussed by
the WTOs full membership in the Trade Policy Review
Body (TPRB). These documents and the proceedings of the
TPRBs meetings are published shortly afterwards.
Since 1995, when the WTO came into force, services and
trade-related aspects of intellectual property rights
have also been covered.

For
this review, the WTOs Secretariat report, together
with the policy statement prepared by the Government of
Brazil , will be discussed by the Trade Policy Review
Body on 30 October and 1 of November 2000. The
Secretariat report covers the development of all aspects
of Brazil's trade policies, including domestic laws and
regulations, the institutional framework, trade policies
by measure and by sector.

Attached
to this press release is a summary
of the observations in the Secretariat report
and parts of the government's
policy statement.
The Secretariat report and the governments policy
statement are available for the press in the newsroom of
the WTO internet site (www.wto.org).
These two documents and the minutes of the TPRBs
discussion and the Chairmans summing up, will be
published in hardback in due course and will be available
from the Secretariat, Centre William Rappard, 154 rue de
Lausanne, 1211 Geneva 21.

The
Secretariats report:

summary

Since
its previous Trade Policy Review in 1996, Brazil has
continued its programme of economic reform, which was
initiated over a decade ago and has, over time, led to
visibly more open trade and investment regimes. Thus,
during the last four years, more neutral sectoral
policies have been adopted and a more market-driven,
decentralized environment has emerged through the
deregulation of state monopolies and prices, investment
liberalization, and privatization. The resulting improved
resource allocation and greater flexibility have helped
the economy to deal successfully with external and other
shocks, facilitating in particular a rapid recovery from
the financial crisis that lead to the floating of the
real in 1999.

A
market-set exchange rate would now seem to provide the
opportunity for Brazil to reduce, and perhaps remove,
some measures taken to restrict imports or support
exports, and to make a definitive break from traces of
past inward-looking policies. Indeed, steps have already
been taken in this direction. Nevertheless, further
reforms would be useful to lessen the anti-export bias
present in the tariff structure, rationalize the use of
tariff concessions and of non-tariff measures, reduce
remaining investment barriers and improve the provision
of credit. These and other reforms aimed at fostering an
undistorted balance between exports and Brazil's large
domestic market offer a positive strategy to achieve and
sustain higher economic growth. This is important because
Brazil still faces the long-term challenge of increasing
GDP per capita, which in real terms is just slightly
higher than at the end of the 1980s.

MACROECONOMIC
DEVELOPMENTS

The
main macroeconomic development since Brazil's previous
Review was the financial crisis of late 1998, and the
subsequent floating of the real in January 1999, which
has since depreciated some 30% against the U.S. dollar.
Economic growth has been uneven in recent years, real GDP
expanding at an average annual rate of about 1.7% during
1996-99, down from some 3.3% in the previous four years.
However, developments in economic activity were better
than expected after the financial crisis and the
prospects are for real growth of 4% in 2000. Inflation
has been kept in line with the Government's target of 8%,
reflecting the firm stance of macroeconomic policies, the
absence of a formal indexation mechanism, and the still
significant output gap.

Foreign
direct investment (FDI) has increased substantially since
1996, exceeding US$30 billion in 1999. Although FDI has
been stimulated by privatization, an important share has
been autonomous reflecting the attractiveness of a large
internal market, better access to other MERCOSUR markets,
and the improved market-orientation of the policy
environment. FDI flows more than cover the current
account deficit (4.5% of GDP in 1999). This deficit has
declined notwithstanding export growth having been
dampened by a deterioration in terms of trade. However,
the current account deficit would seem to be of some
concern, in part because of Brazil's large external debt,
and the authorities are seeking to improve export
performance so as to narrow the trade deficit or move
into surplus. Brazilian trade policy thus features a
series of measures aimed at export promotion, both
through financial support and trade facilitation.

Brazil's
trade as a percentage of GDP remained stable at some 20%
during the period under review. There been no major
changes in the composition of Brazilian merchandise
trade, the share of primary products in total exports
declining only slightly with a corresponding increase in
manufactured exports, namely aircraft and automotive
products. Brazil remains the world's largest exporter of
several agricultural products including coffee, orange
juice and sugar. The United States and MERCOSUR,
especially Argentina, are Brazil's most important
markets, followed by the European Union (EU). The main
suppliers to Brazil are, in decreasing importance, the
EU, the United States, and Argentina.

INSTITUTIONAL
ENVIRONMENT

There
have been no significant changes to the general structure
of trade policy formulation or implementation in Brazil.
The Chamber of Foreign Trade (CAMEX), created in 1995,
formulates and coordinates trade policy. CAMEX is
presided by the Minister of Development, Industry and
Foreign Trade, and includes five other ministers and the
President of the Central Bank. The Chamber coordinates
the implementation of its decisions, but each ministry
remains responsible for matters within its competence.

Foreign
trade in Brazil is governed by a large number of laws,
provisional measures (MPs), decrees, and resolutions,
which have created an intricate web of statutes; its
simplification, for example through the single trade law
mentioned during Brazil's previous Review, could enhance
transparency. Trade-related laws are amended frequently,
including through the use of MPs issued autonomously by
the President. Some amendments have helped speed up
certain reforms but they may also have lessened the
predictability of the regulatory structure for traders.

FDI
has been encouraged by Brazil's favourable policy stance,
which generally accords national treatment to all foreign
investment. The Federal Government does not grant special
incentives to FDI other than those available to
investment in general, which vary by state. Remaining
trade barriers in combination with a relatively liberal
investment environment have probably led to
tariff-jumping foreign investment. As the economy has
become more open and as privatization continues,
competition policy is gaining importance in Brazil.

TRADE
POLICY DEVELOPMENTS

Brazil's
main trade instrument is the tariff, whose structure and
level are largely determined by a programme of
convergence towards MERCOSUR's Common External Tariff
(CET). In 1997, Brazil temporarily raised the tariff by
three percentage points. In addition, tariffs for capital
goods not produced domestically were increased from zero
to 5%. As a result, since 1996 the average MFN tariff has
increased to 13.7% (from 12.5%); the temporary three
percentage points increase is due to be removed by end
2000. Although dispersion has fallen, escalation is still
present. Brazil has bound its tariff but mostly at rates
higher than applied rates; closing this gap would further
improve predictability. A number of rates in the tariff
schedule exceed bound levels, but Brazilian legislation
requires abidance by bindings in such cases.

As
foreshadowed in its previous Review, Brazil has
simplified import procedures through the implementation
of SISCOMEX, a computerized system for customs clearance.
Import financing rules imposed in 1997 were removed in
1999; such rules often required importers to purchase
foreign exchange to pay for imports either upon
importation or 180 days in advance. Still in force are
the lighthouse fee, applied only to foreign flag vessels,
and the Merchant Marine Renewal Tax (AFRMM) on imports
transported by sea.

Automatic
import licences are in place for statistical purposes and
to monitor trade flows. Imports subject to non-automatic
licensing include products subject to a zero import duty
rate, tariff quotas, the drawback regime or the Law
of Similars. The latter aims to prevent the
importation of goods when similar goods are produced
domestically; it is mostly used in specific cases, e.g.
certain government imports or imports of capital goods.
Brazil's import licensing regime has been the subject of
consultations between Brazil and some WTO Members, and is
currently under review. Some import prohibitions would
seem to be in place largely for economic reasons, for
example the bans on the importation of used automobiles
and several other consumer goods.

Brazil
is an active user of contingency measures, mainly
anti-dumping; there are some 46 anti-dumping measures in
force. Over 1996-99, 72 anti-dumping investigations were
initiated leading to the imposition of definitive duties
in 36 cases. Brazilian products have been the target of
several anti-dumping investigations in foreign markets.
Brazil supports negotiations on the WTO Anti-Dumping
Agreement. Brazil applies safeguard measure to toys,
except for imports from some developing countries, which
have been extended to end 2003. During the period under
review, Brazil also applied the transitional safeguard of
the Agreement on Textiles and Clothing.

Export
promotion has been one of the key elements of Brazil's
trade policy, partly to offset domestic inefficiencies
such as poor infrastructure, inefficient financial
intermediation, a cascading tax system and, until 1999,
an overvalued exchange rate. Several export financing
programmes and export guarantee funds are available
including PROEX, an export credit programme the subject
of a dispute in the WTO. Brazil also makes widespread use
of regional support programmes in the form of fiscal
incentives, including tax and duty exemptions for
selective activities notably the automotive sector. All
products are in principle subject to export taxes but,
following the zero-rating of the duty on sugar, only
cured leather appears to be currently taxed.

Since
1996, protection of intellectual property rights has been
enhanced through the passage of new legislation and
greater enforcement efforts. Brazil is not a member of
the WTO Plurilateral Agreement on Government Procurement.
In general, the law offers non-discriminatory treatment
to all bidders but in certain cases preference is given
to Brazilian suppliers or products.

SECTORAL
POLICY DEVELOPMENTS

State
involvement in production activities in Brazil has
diminished substantially and distortions to
inter-sectoral incentives have been reduced through the
progressive adoption of more neutral sectoral policies,
for example the cut back or ending of special programmes
for alcohol production and informatics. However, some
current policies echo earlier import substitution
strategies, with incentives favoring some activities
while implicitly taxing others. Thus, well above average
tariffs apply to beverages, tobacco, furniture, clothing,
and footwear, while tariff dispersion is particularly
high for transport equipment and electronics.

Brazil
has a highly diversified manufacturing sector. During the
period under review, specific support programmes in the
sector were applied to steel, automobiles, aircraft, and
shipbuilding industries. These industries are often also
the target of government assistance in other major
producing countries. The Brazilian automotive regime was
largely phased out as scheduled in December 1999.
Assistance to the aircraft industry, through export
financing, has played a role in the dynamism of this
sector, especially in terms of export performance.

Brazil
is one of the world's major producers and exporters of
agricultural products. Government intervention in the
sector has decreased; support programmes, mostly
minimum-price supports and rural credit at preferential
rates, are targeted at assisting low-income farmers in
disadvantaged areas. Assistance to agriculture appears
modest, especially in the context of market distortions
introduced by the support provided to agriculture in
other countries, a problem that remains of major concern
to the Brazilian authorities.

Important
changes have affected Brazil's energy sector since 1996.
Supported by a regulatory framework introduced in 1998,
the process of privatization of power utilities has
attracted sizeable private investment. Current plans to
increase private participation in the national oil
company follow the adoption of a new petroleum law in
1997. Nevertheless, state involvement in the sector is
still considerable; limitations on foreign capital
participation and procurement also remain, as do price
controls.

Since
1996, there has been significant liberalization in the
services sector, mainly in telecommunications and
financial services. The entry of foreign banks since 1996
has led to increased competition and efficiency in the
banking system but persistent relatively large interest
rate spreads suggest the possibility for further
efficiency gains. Reforms have yet to produce the
required improvements in activities such as
transportation. Thus, additional efforts to improve the
provision of services appear essential to support an
outward-oriented development strategy.

TRADE
POLICY AND FOREIGN TRADING PARTNERS

Brazil
grants at least MFN treatment to all its trading
partners. Brazil's main trade policy objective has been
the implementation of the trade agreements negotiated at
the beginning of the 1990s, namely the Uruguay Round and
MERCOSUR. Better market access conditions for Brazilian
products are also a key item on its trade agenda.

Brazil
is a founding member of the WTO. Multilateral agreements
are an integral part of Brazil's legislation and have the
same hierarchical level as ordinary laws. As a developing
country, Brazil benefited from a transition period to
implement a number of commitments under various WTO
Agreements. Since 1996, Brazil has been involved in 16
cases under the WTO dispute settlement mechanism, seven
as a complainant and nine as a defendant; it has
participated as a third party in four disputes.

Brazil
took an active role in the multilateral Negotiations on
Financial Services and in the Negotiations on Basic
Telecommunications, making offers representing
improvements on its Uruguay Round commitments in both
sectors. In July 2000, Brazil informed the WTO Council on
Trade in Services of its decision not to ratify the
Fourth Protocol on Basic Telecommunications, and
submitted a new schedule of commitments for consideration
by WTO Members. In mid-2000, the Fifth Protocol on
Financial Services was still being discussed in the
Brazilian Congress.

Brazil
gives great importance to deepening integration in South
America; it is the region's largest economy and trader,
and is playing a key role in that process. Accordingly,
one of Brazil's major trade objectives is the completion
of MERCOSUR, by including the sectors currently excluded
from free trade (i.e. automobiles and sugar), the
progressive elimination of the exceptions to the CET, the
coordination of economic policies, and the deepening of
integration in new areas. Another key element of Brazil's
agenda is the pursuit of negotiations with the European
Union; efforts involving the United States, Brazil's main
single trading partner, take place mostly through the
Free Trade Area of the Americas initiative.

Government
report

TRADE
POLICY REVIEW BODY: BRAZIL
Report by the Government  Part V

FUTURE
TRADE POLICY DEVELOPMENTS

The
Brazilian Government shares the view that the
international economy is currently characterized by an
extremely dynamic process of growing internationalization
and integration of national economies, Globalization, as
such process is usually named, will probably continue to
mark the evolution of the international economy in the
foreseeable future.

Because
of the diversity of its foreign trade, both in terms of
products and of partners, Brazil has traditionally been
an active player in all efforts intended to strengthen
the multilateral trading system.

It
is from these objective conditions that stem the central
elements of Brazilian trade policy, directed at
minimizing the risks and maximizing the opportunities of
the process of globalization for the national
socioeconomic development effort, supported by the
continuous enhancement of the disciplines that govern
external trade.

This
effort of adjustment of the Brazilian economy to the new
international context is translated, on the domestic
front, by the continuity and the deepening of the process
of deregulation and privatization of the economy,
alongside the pursuit of institutional and legal bases
for sustained economic development. Reforms of the State
machinery, of the tax system and of social security are
under way with a view to ensuring sustained economic
growth and the continued improvement in the living
conditions of the Brazilian population.

On
the external front, the fundamental objective of
Brazilian trade policy lies in the expansion of
opportunities for the participation of the Brazilian
private sector in the flows of international trade. The
policy of opening the Brazilian economy, implemented
throughout the 90┤s, led to undeniable benefits in the
areas of modernization, productivity and competitiveness.
It has, however, generated a significant growth in
imports. The sustainability of this process will require,
in the long term, a corresponding access to foreign
markets for Brazilian goods and services.

The
successive GATT negotiation rounds, alongside national
trade liberalization policies, have, over the last
decades, produced, on the one hand, a significant
reduction of tariff levels, which are, with few
exceptions, the main obstacle to international trade. On
the other hand, a number of sophisticated and not
entirely transparent non-tariff measures and regulations
have been established in the most developed countries,
currently representing the major restriction to
international market access. Developing countries still
face discriminations in terms of market access for their
agricultural products, such as the non-automatic
recognition of disease free areas, additional
certification prerequisites; unjustifiable border
controls; traceability; and stringent requirements for
foreign producers and others.

The
process of broad market opening undertaken by Brazil
since the beginning of the 90┤s has not resulted in
commensurate access to foreign markets, as had been
expected, in terms of trade barrier reduction in its main
export markets. On the contrary, in many sectors,
specially in those in which Brazil is highly competitive,
developed countries have maintained or even increased
protectionist measures.

This
situation is reflected in Brazilian trade deficits
registered over the last five years with its main
importing markets. In the period 1995-1999, trade with
the European Union, the United States and Japan were
constantly negative, with accumulated deficits of,
respectively, US$ 6,526 billion, US$ 12,215 billion, and
US$ 1,655 billion.

With
regard to trade with the United States, the main export
products affected by restrictive measures are: textiles,
sugar and tobacco (quotas); orange juice, footwear and
ethyl alcohol (specific high tariffs); steel and orange
juice (antidumping duties); fruits and vegetables, bovine
meat and poultry (sanitary and phytosanitary
restrictions).

Within
the European Union, there are still differences in
procedures among Members, with particular note of the
broad environmental legislation and certification
requirements with protectionist impacts. In the European
market, Brazilian exports are subject to different types
of barriers: sanitary and phytosanitary restrictions,
quotas (sugar, bananas, fish products, Hilton Beef,
textiles and poultry), antidumping and countervailing
duties (silicon iron and monosodium glutamate), and
technical barriers (such as warranted labeling
requirements).

There
remain, furthermore, serious and well-known distortions
remain. They derive from the implementation of policies
and practices, very often on a unilateral basis, by
developed countries, which have an adverse impact on the
balance of trade relations at the international level.

The
attainment of greater integration in the world economy is
undertaken on several fronts. Mercosur constitutes the
first external frontier of the Brazilian economy, in
which the current objective is to complete and improve
the customs union, through the inclusion of new sectors,
the progressive consolidation of the Common External
Tariff and the deepening of integration in new areas,
such as government procurement, services, technical
standards and coordination of macro-economic policies.

Beyond
Mercosur the establishment by the end of 2001 of a
broader economic area within South America is being
sought, through the conclusion of a free trade agreement
between Mercosur and the Andean Community, bearing in
mind that South America is one of Brazils main
trading partners.

At
the hemispheric level, the negotiations for the
establishment of the Free Trade Area of the Americas
(FTAA) are scheduled to be concluded in 2005. It is a
project of major dimensions, with profound implications
for the Brazilian economy.

Furthermore,
Mercosur has started negotiations with the European
Union, with the aim of improving trade relations between
the two customs unions. or Brazil, such negotiations
should not exclude, at the outset, any good or service,
and should adopt the single undertaking format. The
conclusion of these negotiations should coincide with
those on the hemispheric context, in 2005.

The
Brazilian trade policy projects of sub-regional, regional
and inter-regional are not, nor could they be, seen as an
alternative to the multilateral trading system. The WTO
Agreements constitute the fundamental normative framework
for the insertion of Brazil into the international
economy. The Brazilian approach as to the central role of
the multilateral trading system was reflected in the
support to the launch, at the III Ministerial Conference
of the WTO, of a new round of multilateral trade
negotiations. Brazil believes that such a round would be
an opportunity for a renewed effort to enhance the
multilateral trading system, particularly through the
possibility of correcting persistent distortions in the
system, which became evident in the implementation of the
Uruguay Round Agreements, particularly in the
agricultural sector and in certain disciplines.